Buyout Bid Jolts Square D, Investors

Offer May Be Unwelcome, But Could Be Hard To Refuse

February 21, 1991|By Charles Storch, and Bill Barnhart.

For the last 2 1/2 years, Square D Co. has been talking with Groupe Schneider of France about entering into a variety of transactions. Now the question may be: Can Square D talk itself out of the biggest one-its own takeover?

The business world was left waiting Wednesday for Square D`s response to Groupe Schneider`s unsolicited takeover proposal of $78 a share, or about $1.96 billion. Speculation is that the Palatine company will spurn the bid, even though the all-cash, fully financed proposal might seem hard for the company to resist.

FOR THE RECORD - Additional material published Feb. 23, 1991:Corrections and clarifications.A graphic pertaining to the takeover bid for Square D. Co. in the Feb. 21 Business section substituted millions for billions in showing the company`s sales for the last five years. The correct sales are in billions, and 1990 sales should have been reported as $1.65 billion. The Tribune regrets the error.

The proposed combination of the electrical-products firms, revealed after the stock market`s close Tuesday, led to some high-voltage trading Wednesday.

On the New York Stock Exchange, Square D shares jumped $20.25 a share, to $72.25. More than 3.7 million, or about 16 percent, of Square D`s outstanding shares changed hands, as takeover speculators swarmed over the stock.

Schneider has said it is willing to negotiate all aspects of a deal, including price, and has asked the Square D board to respond to its proposal by March 1. A Square D spokesman said the board is expected to consider the proposal by then, but wouldn`t be more specific.

Schneider hasn`t said what it will do if its proposal is rejected, but it is believed the company is considering a hostile tender offer-possibly combined with a proxy fight at Square D`s April 24 annual meeting-if its overture is spurned by the board.

If the recent history of dealings between the firms is any guide, Schneider probably expects its bid to be rejected, given past failures to get Square D to agree to any of the transactions it has proposed over the last two years.

Square D spokesman Robert Fiorani confirmed Wednesday that Square D has had previous discussions with Schneider, although he declined to provide details of those talks. He said Schneider was one of several foreign and domestic concerns with which Square D has discussed many types of alliances in recent years.

Sources familiar with the Schneider-Square D talks said the companies discussed transactions such as joint ventures, an exchange of each other`s stock and a sale of Schneider`s Merlin Gerin unit for Square D stock.

The sources, who asked not to be identified, said some of the proposals were earnestly studied but eventually failed because of concerns about tax issues and Square D`s ability to remain independent. Talks that began when the two companies were roughly equal in size also were complicated by Schneider`s more rapid growth in the intervening years.

The sources said that, early in the talks, Schneider was concerned that any joint ventures might be jeopardized if Square D were later acquired by a third party. Schneider is believed to have proposed that the two firms exchange minority positions in each other`s stock to protect Square D from a hostile takeover. Square D apparently was uncomfortable when Schneider suggested taking as much as a 40 percent stake.

Nevertheless, the two companies continued to discuss proposals from time to time, and their chiefs, Jerre L. Stead of Square D and Didier Pineau-Valencienne of Schneider, visited each other at their headquarters and various plants in France and the U.S.

Pineau-Valencienne, 59, and Stead, 48, were said to have become friends. Sources said they share an industrialist`s view of the world and a belief in the need for global alliances. They also were said to share a passion for jogging and skiing.

Last summer the two companies and their investment bankers-Lazard Freres & Co. for Schneider and Goldman, Sachs & Co. for Square D-began studying a sale of Schneider`s Merlin Gerin unit in exchange for Square D stock. Merlin Gerin`s low- and medium-voltage electrical-distributi on business in Europe is similar to that of Square D in the United States.

But the talks seemed to bog down over tax issues and Square D`s concern that it would have to surrender a sizable minority position to Schneider to acquire Merlin Gerin.

The sources said Stead was invited to meet with the Schneider board to discuss the proposal, but declined. At Stead`s invitation, however, Pineau-Valencienne discussed his ideas at informal gatherings with Square D directors in early September.

At those sessions and in a follow-up letter to Square D, Pineau-Valencienne is believed to have said Schneider would consider a larger transaction with Square D if the Merlin Gerin deal were rejected. The sources said the board turned down the Merlin Gerin proposal and politely asked Schneider to forget takeover ideas.

Square D has become a hot rumor stock since September, its shares boosted by speculation it might be acquired by Schneider or some other foreign company, such as Siemens of Germany.

Schneider is believed to have watched this activity with dismay, concerned that a third party might bid for Square D while it was on the sidelines. Schneider suggested to Square D in late November that it could play the role of ``white knight`` and rescue the firm from any hostile suitor.

It wasn`t until Tuesday that Schneider sent a letter to Square D with its proposal to acquire the firm. Some speculators believe the proposal was timed with a possible proxy fight in mind, limiting the amount of time Square D might have to respond to and defend against the takeover bid before its April annual meeting.